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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 62 added, 61 removed, 224 unchanged (35% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2021 10-K, including the Consolidated Financial Statements and Notes in Part II, Item 8, “Financial Statements and Supplementary Data” in that report.

The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2021 10-K, including the Consolidated Financial Statements and Notes included in Part II, Item 8, “Financial Statements and Supplementary Data” in that report.

Unless the context indicates otherwise, references to the terms “UnitedHealth Group,” the “Company,” “we,” “our” or “us” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.

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Future medical cost trends may be impacted by increased consumer

demand for care, potentially even higher acuity care, due to the temporary deferral of care since the onset of the pandemic.

demand for care, and potentially even higher acuity care, due to the temporary deferral of care since the onset of the pandemic.

We endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices, with the objective of helping them achieve high-quality, affordable care.

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The COVID-19 pandemic continues to evolve and the ultimate impact on our business, results of operations, financial condition and cash flows remains uncertain.

During the three months ended March 31, 2022, overall care was near normal baseline levels.

COVID-19 treatment and testing costs continue to be mitigated by the temporary deferral of care, both varying with COVID-19 incidence rates.

During the six months ended June 30, 2022, overall care was near normal baseline levels, with certain areas of care at or approaching seasonal baselines, and other areas below.

COVID-19 treatment and testing costs continue to be mitigated by the temporary deferral of care, both generally varying with COVID-19 incidence rates.

The relationship between COVID-19 care costs and non-COVID-19 utilization lagged in the second quarter, with increased non-COVID-19 utilization not as rapidly coinciding with decreased COVID-19 care and incidence rates as it had throughout the pandemic.

In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2022 year-over-year operating comparisons to first quarter 2021 and other financial results.

The following summarizes select second quarter 2022 year-over-year operating comparisons to second quarter 2021 and other financial results.

• Consolidated revenues grew 13%, UnitedHealthcare revenues grew 12% and Optum revenues grew 18%.

• UnitedHealthcare served nearly 1.5 million more people, led by growth in community and senior programs.

• Consolidated earnings from operations of $7.0 billion compared to $6.7 billion last year, included growth of 20% at Optum, partially offset by a decrease of 8% at UnitedHealthcare.

• UnitedHealthcare served 1.6 million more people, led by growth in community and senior programs.

• Consolidated earnings from operations of $7.1 billion compared to $6.0 billion last year, included growth of 24% at UnitedHealthcare and 14% at Optum.

• Diluted earnings per common share were $5.34.

• Cash flows from operations for the three months ended March 31, 2022 were $5.3 billion.

• Cash flows from operations for the six months ended June 30, 2022 were $12.2 billion.

• Return on equity was 27.9%.

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The following table summarizes our consolidated results of operations and other financial information:

(in millions, except percentages and per share data) Three Months Ended March 31, Increase/(Decrease)

(in millions, except percentages and per share data) Three Months Ended

June 30, Increase/

(Decrease) Six Months Ended

June 30, Increase/(Decrease)

2022 2021 2022 vs.

2021 2022 2021 2022 vs.

Premiums $ 63,896 $ 56,233 $ 7,663 14 % $ 127,966 $ 111,719 $ 16,247 15 %

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Investment and other income 295 556 (261) (47) 662 1,008 (346) (34)

367 452 (85) (19)

Total revenues 80,332 71,321 9,011 13 160,481 141,517 18,964 13

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Earnings attributable to noncontrolling interests (129) (106) (23) 22 (250) (222) (28) 13

(121) (116) (5) 4

Net earnings attributable to UnitedHealth Group common shareholders $ 5,070 $ 4,266 $ 804 19 % $ 10,097 $ 9,128 $ 969 11 %

$ 5,027 $ 4,862 $ 165 3 %

Diluted earnings per share attributable to UnitedHealth Group common shareholders $ 5.34 $ 4.46 $ 0.88 20 % $ 10.61 $ 9.55 $ 1.06 11 %

$ 5.27 $ 5.08 $ 0.19 4 %

Medical care ratio (a) 81.5 % 82.8 % (1.3) % 81.8 % 81.9 % (0.1) %

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Return on equity (c) 27.9 % 25.2 % 2.7 % 27.9 % 27.3 % 0.6 %

(a) Medical care ratio is calculated as medical costs divided by premium revenue.

(a) Medical care ratio (MCR) is calculated as medical costs divided by premium revenue.

(b) Net earnings margin attributable to UnitedHealth Group shareholders.

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Medical Costs and MCR

Medical costs and MCR increased as a result of business mix and decreased favorable development.

Medical costs also increased due to growth in people served through Medicare Advantage, Medicaid and commercial offerings.

Medical costs increased due to growth in people served through Medicare Advantage, Medicaid and commercial offerings.

For the three months ended June 30, 2022, MCR decreased due to COVID-19 effects and business mix.

For the six months ended June 30, 2022, MCR decreased as a result of COVID-19 effects offset by business mix and decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

Operating Cost Ratio

The operating cost ratio decreased primarily due to COVID-19 related revenue effects, operating efficiency gains and business mix.

For the three months ended June 30, 2022, the operating cost ratio increased primarily due to business mix and investments, partially offset by COVID-19 related revenue effects.

For the six months ended June 30, 2022, the operating cost ratio decreased as a result of COVID-19 related revenue effects, partially offset by business mix.

Reportable Segments

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The following table presents a summary of the reportable segment financial information:

Three Months Ended March 31, Increase/(Decrease)

Three Months Ended

June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

(in millions, except percentages) 2022 2021 2022 vs.

2021 2022 2021 2022 vs.

UnitedHealthcare $ 62,105 $ 55,474 $ 6,631 12 % $ 124,700 $ 110,588 $ 14,112 13 %

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Optum eliminations (588) (478) (110) 23 (1,141) (953) (188) 20

43,259 36,384 6,875 19

Optum 45,082 38,303 6,779 18 88,341 74,687 13,654 18

Eliminations (26,855) (22,456) (4,399) 20 (52,560) (43,758) (8,802) 20

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Optum Rx 1,044 993 51 5 1,983 1,883 100 5

3,152 2,631 521 20

Optum 3,282 2,883 399 14 6,434 5,514 920 17

Consolidated earnings from operations $ 7,132 $ 5,978 $ 1,154 19 % $ 14,082 $ 12,717 $ 1,365 11 %

$ 6,950 $ 6,739 $ 211 3 %

Operating margin

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Optum Rx 4.2 4.4 (0.2) 4.1 4.3 (0.2)

Optum 7.3 7.5 (0.2) 7.3 7.4 (0.1)

Consolidated operating margin 8.9 % 8.4 % 0.5 % 8.8 % 9.0 % (0.2) %

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The following table summarizes UnitedHealthcare revenues by business:

Three Months Ended March 31, Increase/(Decrease)

Three Months Ended June 30, Increase/(Decrease) Six Months Ended June 30, Increase/(Decrease)

(in millions, except percentages) 2022 2021 2022 vs.

2021 2022 2021 2022 vs.

UnitedHealthcare Employer & Individual - Domestic $ 15,567 $ 14,942 $ 625 4 % $ 31,389 $ 29,574 $ 1,815 6 %

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UnitedHealthcare Medicare & Retirement 28,625 25,304 3,321 13 57,725 50,778 6,947 14

29,100 25,474 3,626 14

UnitedHealthcare Community & State 15,666 13,110 2,556 19 31,206 26,083 5,123 20

15,540 12,973 2,567 20

Total UnitedHealthcare revenues $ 62,105 $ 55,474 $ 6,631 12 % $ 124,700 $ 110,588 $ 14,112 13 %

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The following table summarizes the number of people served by our UnitedHealthcare businesses, by major market segment and funding arrangement:

March 31, Increase/(Decrease)

June 30, Increase/(Decrease)

(in thousands, except percentages) 2022 2021 2022 vs.

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Medicare Part D stand-alone 3,330 3,750 (420) (11) %

Commercial business increased due to growth in risk-based offerings.

Commercial business increased primarily due to organic growth and business combinations.

Medicare Advantage increased due to growth in people served through individual and group Medicare Advantage plans.

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UnitedHealthcare’s revenues increased due to growth in the number of individuals served through Medicare Advantage and Medicaid, including a greater mix of people with higher acuity needs, and an increase in the number of individuals served through commercial benefits.

Earnings from operations declined primarily due to decreased favorable development partially offset by the factors impacting revenue and COVID-19 impacts.

For the three months ended June 30, 2022, earnings from operations increased due growth in people served and COVID-19 effects.

For the six months ended June 30, 2022, earnings from operations increased due to growth in people served and COVID-19 effects, partially offset by decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

Total revenues and earnings from operations increased due to growth across the Optum businesses.

The results by segment were as follows:

Revenues at Optum Health increased primarily due to organic growth in value-based care arrangements and acquisitions.

Earnings from operations increased due to organic growth in value-based care arrangements, COVID-19 effects and cost management initiatives.

Optum Health served approximately 100 million people as of March 31, 2022 compared to 99 million people as of March 31, 2021.

Revenues at Optum Health increased primarily due to organic growth in value-based care arrangements and business combinations.

Earnings from operations increased due to organic growth in value-based care arrangements, cost management initiatives and COVID-19 effects.

Optum Health served approximately 101 million people as of June 30, 2022 compared to 99 million people as of June 30, 2021.

Optum Insight

Revenues and earnings from operations at Optum Insight increased due to growth in managed services and technology, with managed services growth driven by higher payer volumes and new health system partnerships.

Revenues and earnings from operations at Optum Rx increased due to higher script volumes from growth in people served, increased utilization and organic growth in pharmacy care services, including community-behavioral, specialty pharmacy and e-commerce services.

Earnings from operations also increased as a result of continued supply chain management initiatives.

Optum Rx fulfilled 352 million and 329 million adjusted scripts in the first quarters of 2022 and 2021, respectively.

Optum Rx fulfilled 357 million and 342 million adjusted scripts in the second quarters of 2022 and 2021, respectively.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

Summary of our Major Sources and Uses of Cash and Cash Equivalents

Three Months Ended March 31, Increase/(Decrease)

Six Months Ended June 30, Increase/(Decrease)

(in millions) 2022 2021 2022 vs.

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Issuances of short-term borrowings and long-term debt, net of repayments 6,162 4,858 1,304

2,048 2,907 (859)

Proceeds from common stock issuances 756 764 (8)

Customer funds administered 5,786 2,395 3,391

5,120 2,131 2,989

Total sources of cash 24,894 19,562

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Cash paid for acquisitions, net of cash assumed (7,150) (4,642) (2,508)

(1,231) (1,193) (38)

Purchases of investments, net of sales and maturities (3,366) (2,789) (577)

Purchases of property, equipment and capitalized software (1,212) (1,130) (82)

(555) (568) 13

Cash dividends paid (2,908) (2,548) (360)

(1,363) (1,181) (182)

Purchases of redeemable noncontrolling interests (97) (1,338) 1,241

Other (1,981) (1,310) (671)

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2022 Cash Flows Compared to 2021 Cash Flows

Decreased cash flows provided by operating activities were primarily driven by changes in working capital accounts.

Other significant changes in sources or uses of cash year-over-year included increased customer funds administered, partially offset by increased share repurchases and decreased net issuances of short-term borrowings and long-term debt.

Increased cash flows provided by operating activities were primarily driven by increased net earnings partially offset by changes in working capital accounts.

Other significant changes in sources or uses of cash year-over-year included increased customer funds administered, primarily driven by Medicare Part D timing, net issuances of short-term borrowings and long-term debt and decreased purchases of redeemable noncontrolling interests, partially offset by increased cash paid for acquisitions and share repurchases.

Financial Condition

As of March 31, 2022, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $68.8 billion included approximately $25.5 billion of cash and cash equivalents (of which $2.5 billion was available for general corporate use), $39.8 billion of debt securities and $3.5 billion of investments in equity securities.

As of June 30, 2022, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $68.0 billion included approximately $24.6 billion of cash and cash equivalents (of which $1.7 billion was available for general corporate use), $40.0 billion of debt securities and $3.4 billion of investments in equity securities.

Given the significant portion of our portfolio held in cash and cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position.

Our available-for-sale debt securities portfolio had a weighted-average duration of 4.1 years and a weighted-average credit rating of “Double A” as of March 31, 2022.

Our available-for-sale debt securities portfolio had a weighted-average duration of 4.1 years and a weighted-average credit rating of “Double A” as of June 30, 2022.

When multiple credit ratings are available for an individual security, the average of the available ratings is used to determine the weighted-average credit rating.

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A summary of our cash requirements as of December 31, 2021 was disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 10-K.

During the three months ended March 31, 2022, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the six months ended June 30, 2022, there were no material changes to this previously disclosed information outside the ordinary course of business.

We believe our capital resources are sufficient to meet future, short-term and long-term, liquidity needs.

We continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions.

We continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and business combinations.

Short-Term Borrowings.

Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of unsecured debt through independent broker-dealers, and are available for general corporate purposes.

For more information on our commercial paper and bank credit facilities, see Note 8 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

For more information on our commercial paper and bank credit facilities, see Note 8 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

Our revolving bank credit facilities contain various covenants, including covenants requiring us to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 60%.

As of March 31, 2022, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 37%.

As of June 30, 2022, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 37%.

Long-Term Debt.

Periodically, we access capital markets and issue long-term debt for general corporate purposes, such as, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases.

For more information on our long-term debt, see Note 8 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

For more information on our long-term debt, see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

Credit Ratings.

Our credit ratings as of March 31, 2022 were as follows:

Our credit ratings as of June 30, 2022 were as follows:

Moody’s S&P Global Fitch A.M.

Ratings Outlook Ratings Outlook Ratings Outlook Ratings Outlook

Senior unsecured debt

A3 Stable A+ Stable A Stable A Stable

Senior unsecured debt A3 Positive A+ Stable A Stable A Stable

Commercial paper P-2 n/a A-1 n/a F1 n/a AMB-1+ n/a

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Share Repurchase Program.

During the three months ended March 31, 2022, we repurchased approximately 5 million shares at an average price of $485.12 per share.

As of March 31, 2022, we had Board authorization to purchase up to 40 million shares of our common stock.

Our quarterly cash dividend to shareholders reflects an annual dividend rate of $5.80 per share.

Pending Acquisitions.

As of March 31, 2022, we have entered into agreements to acquire companies in the health care sector, most notably Change Healthcare (NASDAQ:

During the six months ended June 30, 2022, we repurchased approximately 10 million shares at an average price of $492.11 per share.

As of June 30, 2022, we had Board of Directors’ authorization to purchase up to 35 million shares of our common stock.

In June 2022, the Company’s Board of Directors increased our quarterly cash dividend to shareholders to an annual rate of $6.60 compared to $5.80 per share.

For more information on our dividend, see Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Pending Business Combinations.

As of June 30, 2022, we have entered into agreements to acquire companies in the health care sector, most notably Change Healthcare (NASDAQ:

CHNG) and LHC Group, Inc.

LHCG), subject to regulatory approval and other customary closing conditions.

The total anticipated capital required for these acquisitions, excluding associated disposition proceeds and the payoff of acquired indebtedness, is approximately $15 billion.

For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2021 10-K.

The total anticipated capital required for these business combinations, excluding associated disposition proceeds and the payoff of acquired indebtedness, is approximately $14 billion.

For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our 2021 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

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Our critical accounting estimates include medical costs payable and goodwill.

For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2021 10-K.

For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our 2021 10-K.

For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2021 10-K.

FORWARD-LOOKING STATEMENTS

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Actual results could differ materially from those that management expects, depending on the outcome of certain factors including:

risks associated with public health crises, large-scale medical

emergencies and pandemics, such as the COVID-19 pandemic;

risks associated with public health crises, large-scale medical emergencies and pandemics, such as the COVID-19 pandemic;

our ability to effectively estimate, price for and manage medical costs;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis